Correlation Between National Bank and Royal Bank
Can any of the company-specific risk be diversified away by investing in both National Bank and Royal Bank at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining National Bank and Royal Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank of and Royal Bank of, you can compare the effects of market volatilities on National Bank and Royal Bank and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in National Bank with a short position of Royal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Royal Bank.
Diversification Opportunities for National Bank and Royal Bank
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and Royal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank and National Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on National Bank of are associated (or correlated) with Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of National Bank i.e., National Bank and Royal Bank go up and down completely randomly.
Pair Corralation between National Bank and Royal Bank
Assuming the 90 days trading horizon National Bank of is expected to generate 1.68 times more return on investment than Royal Bank. However, National Bank is 1.68 times more volatile than Royal Bank of. It trades about 0.32 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.23 per unit of risk. If you would invest 2,321 in National Bank of on August 28, 2024 and sell it today you would earn a total of 71.00 from holding National Bank of or generate 3.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank of vs. Royal Bank of
Performance |
| Timeline |
| National Bank |
| Royal Bank |
National Bank and Royal Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and Royal Bank
The main advantage of trading using opposite National Bank and Royal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank position performs unexpectedly, Royal Bank can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Royal Bank will offset losses from the drop in Royal Bank's long position.| National Bank vs. Forstrong Global Income | National Bank vs. BMO Aggregate Bond | National Bank vs. Terreno Resources Corp | National Bank vs. iShares Canadian HYBrid |
| Royal Bank vs. Forstrong Global Income | Royal Bank vs. BMO Aggregate Bond | Royal Bank vs. Terreno Resources Corp | Royal Bank vs. iShares Canadian HYBrid |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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